AAC’s 4Q20 net profit (-0.1% YoY) was 4%/32% higher than consensus/our estimates, mainly due to deferred tax asset of RMB95mn. On operating level, 4Q revenue declined 10% YoY and GPM dropped 1ppt YoY to 28.1%, given continued pressure in acoustics, MEMS and haptics & casing. While 4Q optics shipment growth of 55% YoY remains on track, weaker lens ASP/GPM suggested intensified competition amid ongoing de-spec trend. We expect slower 6P/WLG ramp and HCM expansion will drag AAC’s GPM in FY21E. Therefore, we lowered FY21-22E EPS by 1-7%, and our FY21-23E EPS are 28-34% below consensus. Maintain Hold with new SOTP-based TP HK$45.3 given fair valuation at 21.8x FY21E P/E and slower optics improvement.
- 4Q20 operating level below; GPM slightly improved QoQ. AAC’s flattish 4Q20 net profit was higher than expectation due to one-off tax asset of RMB95mn recognized, while revenue fell 10% YoY given sales pressure across all traditional segments (acoustics, MEMS, haptics & casings). GPM was in-line at 28.1% (+4.5ppt QoQ, -1ppt YoY), driven by better acoustics/ED&PM margin.
- Optics: weaker ASP/GPM amid de-spec trend. Although 4Q plastic lens shipment reached 70-80kk/m in 4Q20 (vs 40-50kk/m in 3Q), we are cautious on optics GPM miss (21.4%, vs 30% guidance) and ASP decline of 10% YoY (vs +3% YoY in 3Q) due to weaker 6P mix (6-7% in 2H20). Given ongoing de-spec trend and intense competition with Sunny/Largan, we expect AAC’s optics ASP/GPM improvement will be slower than expected. In addition, HCM expansion and WLG ramp in 1H21E will be a margin drag in the near term.
- 2021 outlook: lack of upgrade across all segments. Mgmt. guided 2021 CAPEX will be 10-15% lower than RMB5.09bn in 2020, due to significant reduction in optics investment. In our view, 2021 will remain a slow year for smartphone spec upgrade given semi cost hike, and we expect ASP/GPM pressure to continue across haptics, acoustics, casings and plastic lens.
Our FY21-23E EPS are 25-34% below consensus; Maintain HOLD. We trimmed FY21-22E EPS by 1-7% for lower ASP/margin for optics. Our new SOTP-based TP is HK$45.3, implying 24.9x FY21E P/E. Trading at 21.8x FY21E P/E, the stock is fairly valued in our view. Upside risks include better optics margin and stronger WLG adoption.
